Hands down, the hardest part of filing for bankruptcy protection is actually deciding to file for bankruptcy protection. Filing for bankruptcy protection has long carried with it a social stigma and, as a result, many potential debtors have the preconceved notion that turning to bankruptcy protection is a bad thing.
The good news is that the social stigma of bankruptcy is a thing of the past. Most people now recognize that bankruptcy can be a prudent financial decision for those facing financial difficulty. Granted, it is not without its downfalls, however there are many scenarios in which filing for bankruptcy can dramatically improve an individuals financial picture. This is something than can only contribute to a stronger local economy.
Now, back to the question at hand. Should I file for bankruptcy? There are many good reasons to file for bankruptcy protection. Below, you can find a handul of them.
- Bankruptcy can eliminate excessive credit card debt and medical bills: As a matter of fact, it can also eliminate non-excessive credit card debt and medical bills. However, as with all life decisions, the good must outweight the bad. Bankruptcy should be considered when you have debt that, when compared to your income and expenses, will cause significant hardship if repaid.
- Bankruptcy can prevent foreclosures, garnishments, and repossesions: Filing for bankruptcy produces an automatic stay, which prevents creditors from collecting on debts while the stay is in place. Note that there are means by which a creditor can seek relief from the automatic stay of bankruptcy. However, if a foreclosure or repossession is imminant, it gives you additional time to seek preventative measures.
- Bankruptcy can eliminate second mortgages: Certain chapters of bankruptcy protection allow debtors to strip wholly unsecured second mortgages of their secured status, reclassifying them as unsecured debts. This means that certain mortgages and HELOCs can be eliminated in bankruptcy similarly to credit card debt.
- Bankruptcy can reduce the principal balance of automobile loans: Certain chapters of the bankruptcy code allow debtors to cram down the principal balance of their car loan to the current market value of the vehicle.
- Bankruptcy allows debtors to retain specific exempt assets as defined by the bankruptcy code: Filing bankruptcy does not automatically mean that you will lose your house or car. The bankruptcy code defines a list of exempt assets that are deemed necessary to achieve a financial fresh start. In Arizona, the chapter 7 bankruptcy exemptions are fairly generous, allowing debtors to retain up to $150,000 in primary home equity and $5,000 in vehicle equity.
As I said earlier, the above discussion represents only a small subset of the benefits that bankruptcy can offer. On the opposite end of the spectrum, there are downfalls to bankruptcy. This is why it is important to discuss all options with an experienced bankruptcy lawyer prior to filing. If you are a resident of Arizona and would like to schedule a free bankruptcy consultation in Phoenix, contact our attorneys today.
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